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Corporate Focused Budget Update 

 

 Welcome

 

 

Welcome to our 2014 budget announcement edition of Advice and News.

In this analysis we have mainly concentrated on the budget announcements that will directly affect the corporate sector.

The key announcements were on:


Personal tax


Business tax


Property tax


VAT


 Personal tax

 


Income tax

The government has declared that the tax-free personal allowance will increase to £10,000 for 2014/15 and £10,500 in 2015/16. As well as increasing the higher rate tax threshold to £41,865 in 2014/15 and £42,285 in 2015/16. Whilst also enabling the transfer of personal tax allowance for married couples and civil partners from April 2015. This will allow couples to transfer up to £1,050 to their spouse.  Only basic rate taxpayers will be allowed to do this.

 

In addition to that the current 10% starting rate for savings will be reduced to a 0% band in 2015/16 and expanded to cover £5,000 of savings income. There will also be a consultation on limiting the UK personal allowance to UK residents and those living overseas who have strong UK connections – this could mean removing automatic entitlement to the personal allowance for all UK/EU citizens who are resident overseas.

 

The government also indicated that the income tax relief for interest paid on loans to invest in close companies will be expanded to include all companies resident throughout the European Economic Area (EEA).

 

Capital gains tax

The government announced that capital gains tax annual exemption will be £11,000 in 2014/15 and £11,100 in 2015/16. Moreover the government will commence a consultation on making non-residents subject to capital gains tax on selling UK residential property from April 2015. As well as that the government aims to reduce private residence relief final period exemption from the last 36 months to the last 18 months for sales (exchange of contracts) on or after 6 April 2014.

 

Savings and investment

The government is to merge Cash ISAs and Stock & Shares ISAs into form a single type of New ISA (NISA) which from July 2014 will have an annual limit of £15,000. The limit on cash savings will be removed, so the full amount could be held in cash and assets can be transferred from cash to stocks and vice versa. For 2014/15 the Junior ISA and Child Trust Fund limits will be increased to £4,000.

 

The maximum investment into Premium Bonds will increase to £40,000 from August 2014 and then to £50,000 from 2015/16. In addition to this the “Pensioner Bonds” will be introduced for the over 65s offering fixed-rate, market-leading investment bonds, paying between 2.8%-4% gross for 1 and 3 year bonds.

 

 

 Business tax

 

 

Annual investment  allowance (AIA)

 

In the 2014 budget it was announced that the AIA is to be increased from £250,000 to £500,000.  The increase in the AIA begins on the 1 April 2014 for corporation tax and 6 April 2014 for income tax and will extend to 31 December 2015 after which it will return to £25,000. 

 

Tax relief for the creative sector  

 

As part of the finance bill 2014, new corporation tax relief for theatrical productions and touring theatrical productions is to be introduced following consultation on the design of the scheme.

 

Changes are to be made to the video games tax relief to ensure it compliant with EU State Aid approval. The legislation states that only those games on which relief is claimed are to be treated as separate trades.  Similar clarification will be provided with respect to television tax relief. 

 

Research and development tax credit

The rate of research and development payable credit for SMEs is to be increased to from 11% to  14.5%. Increasing the rate of cash credit payable to SMEs that conduct qualifying research and development activity but do not have corporation tax liabilities. The enhanced credit will be available with respect to qualifying expenditure incurred on or after 1 April 2014. 

 

Enterprise and Seed Investment Scheme

The budget outlines that the sunset clause is to be abolished, therefore relief under the SEIS is to be placed on a permanent basis. The CGT relief for gains reinvested in shares qualifying under the SEIS is similarly placed on a permanent basis.  The extended relief will apply as for 2013-14 to half the qualifying reinvested amount capped at the £100k investment limit.

However  companies which benefit from DECC Renewable Obligations certificates or Renewable Heat Incentive subsidies are to be excluded from benefiting under the Enterprise Investment Scheme, Seed Enterprise Investment Scheme and Venture Capital Trust Scheme. The change will have effect following Royal Assent to the Finance Bill 2014. 

Social investment tax relief

Social investment tax relief will provide a range of income and capital gains tax reliefs to provide incentives for investment by individuals in qualifying social enterprises. Income tax relief will be available at 30% of the amount invested. The relief is to be available from 6 April 2014. 

 

Rollover relief on intangible assets

The budget also denoted that measures will be brought in to prevent companies claiming rollover relief for chargeable gains on selling tangible fixed assets when the proceeds are reinvested in intangible assets.

Basic Payment Scheme, the replacement for EU agricultural subsidies under the Single Payment Scheme, will be included in the class of assets eligible for business asset rollover relief.

Capital allowances

 

The budget also stated that the enhanced capital allowances (ECAs) available for companies investing in plant or machinery in designated enterprise zones is to be extended for a further 3 years to 31 March 2020. ECAs in Enterprise Zones were introduced in 2012 for a 5 year period to 31 March 2017 and provide for a 100% capital allowance for qualifying expenditure. The  Finance Bill 2014 will clarify the expenditure that qualifies for Business Premises Renovation Allowances.  Relief will only be available for the actual cost of construction and building work and for certain specified activities such as architectural and surveying services. 

 

National Insurance contributions

 

The Chancellor’s also announced the introduction of legislation to collect Class II NICs alongside income tax and Class IV NICs under self-assessment. These changes will have effect from April 2016.

 

Company car tax

 

The 2014 budget also outlines that the 2% increase in company car tax is to be extended to 2017-18 and 2018-19, with increased discount for ultra-low emission vehicles. The Government is reviewing incentives for ultra-low emission vehicles and further legislation will be introduced next year.

 

 Property tax

 


Annual tax on enveloped dwellings (ATED)

 

The budget outlined that from 1 April 2015 residential properties owned by non-natural persons (e.g. companies) valued at £1-2million will be liable to an annual charge of £7,000. On the 1st of   April 2016 this will be expanded to properties valued at £500,000-£1million; those companies will pay £3,500 annually. Exemptions continue to apply for residential properties let to third parties on commercial terms. Properties that fall within the new ATED bands will also be liable to capital gains tax at 28% when the property is sold. ATED rates have increased for 2014/15, with the starting rate now £15,400 for properties worth between £2-5million and £35,900 for property valued between £5-10million. The higher bands have been increased too.

 

Stamp duty land tax (SDLT)

 

The government announced that 15% SDLT rate on residential properties worth more than £2m acquired by non-natural persons will be expanded to cover all properties valued at more than £500k.This applies to contracts entered into on or after 20 March 2014.

 

Stamp duty reserve tax is to be abolished on unit trusts and open-ended investment companies. These changes will take effect from 30 March 2014. 

 

Accelerated payments in tax avoidance

 

Legislation is to be introduced in Finance Bill 2014 to require taxpayers who have used avoidance schemes which are defeated in another party’s litigation to pay the disputed amount to HMRC on demand. These provisions are to be broadened to extend accelerated payment of tax to users of schemes disclosed under the Disclosure of Tax Avoidance Schemes (DoTAS) rules and taxpayers involved in schemes subject to counter-action under the General Anti-Abuse Rule (GAAR). 

 Measures are to be introduced to prevent companies from obtaining a corporation tax advantage by transferring profits between companies in the same group for tax avoidance purposes.  Where the main purpose is to secure a tax advantage then for tax purposes the transfer will be regarded as not having taken place. The Government is to consult on extensions to the DOTAS “hallmarks” for inclusion in a future Finance Bill.

 

 VAT

 


The VAT registration limit increases from £79,000 to £81,000, and the de-registration limit rises from £77,000 to £79,000. The changes will take effect on 1 April. There will be a change to the VAT treatment of prompt payment discounts. At present VAT is accounted for on the discounted price even when the discount is not taken up. In future VAT will be due on the consideration received. For supplies of telecommunications and broadcasting services where there is no obligation to provide an invoice, the measure will take effect on 1 May.

 

Moreover other supplies it will apply to supplies made on or after 1 April 2015, unless a need is identified to bring it forward for certain specified categories of supply. In contrast a  reverse charge will apply to the wholesale gas and electricity markets. This is aimed at preventing fraud.

 

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